Railway Budget 2013: Analysts give mix reaction on rail budget

Mumbai: Analysts on Tuesday gave a mixed reaction to the railway budget, with some terming it as a "non-event" saying there were no radical measures to bridge the revenue deficit in the document, and a few calling it "pragmatic" given the limitations.

While E&Y and Nomura analysts described it as 'run of the mill type', PwC India termed the exercise by Rail Minister Pawan Kumar Bansal as pragmatic with focus on the short-term.

Commenting on the rail budget, PwC India Executive Director for capital projects & infrastructure Manish Agarwal said, "I see this as a pragmatic budget, clearly focused on the short-term. The fuel adjustment charge on freight is an economically sensible approach, and the expectation of 3 percent freight growth recognises the practical implications on further burdening this segment."

Abhaya Agarwal, partner for infrastructure practices at Ernst&Young India, said this was not a growth-inducing and game-changer budget.

"More emphasis on investment and specific roadmap for achieving them was expected from the budget," Agarwal said, adding it only brings lot of cheer to passengers and the staff and not any reforms, as the emphasis is on investment in passenger amenities, skill development and staff welfare.

Nomura India Chief Economist Sonal Varma said the entire exercise has turned out to be largely a "non-event" with the only positive measure being linking freight charge revisions to fuel costs.

Since the Minister left passenger fares unchanged, the operating ratio (expenses/earnings ratio) is expected to improve only marginally to 87.8 percent in FY14 from 88.8 percent this fiscal, which itself is much higher than the budgeted target of 84.9 percent.

That the gross budgetary support for the Railways has risen by 8 percent y-o-y to Rs 26,000 crore against a 20 percent rise in the last budget, suggests that the government is likely to keep a tight leash on spending, Varma said.

"On the whole, there are no fireworks in the rail budget. While linking freight to fuel costs is the right move, subsidised passenger fares account for bulk of rail losses and until that is addressed, the financial position of the Railways is unlikely to turn around quickly, and investment in the sector will languish," she said.

PwC's Agarwal said, "The absence of a long-term vision is not necessarily a bad thing, considering the country is heading towards general elections. The appeal to states to participate in rail projects is an important one as the Centre-state SPV route has the ability to get projects up the priority list where the state is willing to participate, and can be game-changer".

But he said there is no clear readiness to adopt the PPPs model in the budget document. "The biggest disappointment is the absence of even a mention of land monetisation, which probably indicates that concerns around a transparent model for land deals continue to remain," he said.

D R Dogra of rating agency Care gave a mixed view saying as expected, the rail budget was conservative given the resource constraints.

"Given this limitation, the Minister tried to strike a balance between bringing about certain investments in improving the structures while balancing the budget. This will mean several initiatives in terms of safety enhancement, additional connectivity, tracks, tech improvements, etc. This could to a certain extent have a positive impact on various sectors such as cement, steel, engineering, construction, etc," Dogra said.

However, he warned that the increase in freight rates which would be linked with the diesel price movements could add to inflation.

On the sharp decline in stock markets, he said "the market did not react positively for two reasons. The first is that it was expected to be an innovative budget that would give direction to specific industries, which has not materialised.

"Second, the potential increase in freight rates would hike not just the cost of transport of railway traffic, but also add to inflation."